Forex Focus
Access to foreign exchange trading has opened up exciting trading options for the retail trader. You can now trade alongside corporations and institutions in a highly liquid market that is global, traded around the clock, and highly leveraged. Before jumping into this market, however, we must understand the factors that affect the forex market. With that in mind, STOCKS& COMMODITIES has introduced Forex Focus to better prepare the retail trader to participate in the currency market.
Let The Technicals Do The Talking
by Jared Martinez
Interpreting charts is an art as well as a science, which is why you need to map out all the different scenarios that can take place once you place a trade. Here's one chart interpretation method that combines technical tools.
Understanding Fibonacci's discoveries changed not only my trading career but my life. What the Italian mathematician discovered back in the 13th century explains how nature works. His discoveries proved that we are created in a numerical sequence, just like pine cones and pineapples. His discoveries proved that the market is not a mysterious place that people have to fear. It is, instead, a place where organized chaos exists.
The market is a dynamic system that reflects the human condition. It is the science of matter and energy and their interactions: the ebb and flow, the action and reaction, the ups and downs of life. Humans are the market -- not banks or financial institutions, but human beings with human feelings and human emotions. Our greed, fears, and habits create the market; we are nothing more than nature's puppets participating in the balance of nature.
Learning about Fibonacci saved my financial life. Learning how to trade the Fibonacci retracement and extension numbers using trendlines and candlestick formations improved my trading substantially.
THE LONG JOURNEY
Have you ever noticed that every now and then we go on a journey and you discover yourself along the way? I was confronted with this as I discovered using the Fibonacci elements in the marketplace. I discovered that trading is not a game of luck. It is a solid means of creating income.
Income comes to those who approach the market with knowledge and discipline. Trading successfully comes from thoroughly educating yourself on how the markets work and then determining how to manage your risk.
Take forex trading, for example. The currency market is filled with traders who have differing opinions of which way the market is moving. One reason they may have such varying ideas could be based on the charts and time frames they examine. A trader who looks at daily charts may think the market is trending up, while a trader who looks at a 60-minute chart may think the market is trending down. They may both be right.
How? It comes down to understanding technical analysis and whether your trading style is that of a daytrader/scalper or a long-term position trader.
Seven major technical points play an important part in making a trading decision in an uptrend as well as a downtrend. Up, down or even sideways, the market is participating in a trend. The seven technicals are:
1. The current A-B boundaryFor space considerations, I will only touch on three of the seven in detail -- the A-B boundary, the Fibonacci retracement, and the candlestick for entry.
2. Get an entry signal
3. Draw the current trendline
4. Draw current countertrend
5. Find and mark all past resistance and support levels
6. Spread the Fibonacci tool, look at the retracement levels as well as the extension levels
7. Wait for a candlestick formation for entry.
Return to December 2007 ContentsOriginally published in the December 2007 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2007, Technical Analysis, Inc.